Page 364 - Foundations of Marketing

Pricing Concepts and Management | Chapter 12 331

Cash Flow

Some companies set prices so they can recover cash as
quickly as possible. Financial managers understandably
want to recover capital spent to develop products. Choosing
this pricing objective may have the support of a marketing
manager if he or she anticipates a short product life cycle.
Although it may be acceptable in some situations, the use
of cash flow and recovery as an objective oversimplifies
the contribution of price to profits. If this pricing objective
results in high prices, competitors with lower prices may
gain a large share of the market.

Status Quo

In some cases, an organization is in a favorable position and
desires nothing more than to maintain the status quo. Status
quo objectives can focus on several dimensions, such as
maintaining a certain market share, meeting (but not beating)
competitors’ prices, achieving price stability, and maintain-
ing a favorable public image. A status quo pricing objective
can reduce a firm’s risks by helping to stabilize demand for
products. A firm that chooses status quo pricing objectives
risks minimizing pricing as a competitive tool, which could
lead to a climate of non-price competition. Professionals
such as accountants and attorneys often operate in such an
environment. © Maksim Toome/Shutterstock.com

Product Quality
A company may have the objective of leading its industry
in product quality. A high price on a product may have the Product Quality
effect of signaling to customers that the product is of a high Lexus is a high-quality automobile and is priced to reflect this
quality. Attaining a high level of product quality also is more product’s high quality.
expensive for the firm, as the costs of materials, research, and
development may be more. When Ferrari, maker of high-end sports cars, entered the high-
end headphone market to take advantage of increased interest from audiophiles, it priced the
goods at around $ 300 and up. Because the Ferrari name already spoke of luxury and quality,
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the firm did not want to dilute this image with a low-end product. As previously mentioned,
the PIMS studies have shown that both product quality and market share are good indicators
of profitability. The products and brands that customers perceive to be of high quality are more
likely to survive in a competitive marketplace because they trust these products more, even if
the prices are higher.

ASSESSMENT OF THE TARGET MARKET’S LO 2 . Understand the
assessment of the target
EVALUATION OF PRICE market’s evaluation of price.

After developing pricing objectives, marketers next must assess the target market’s evaluation
of price. Despite the general assumption that price is a major issue for buyers, the impor-
tance of price varies depending on the type of product and target market, and the purchase
situation. For instance, buyers are more sensitive to gasoline prices than luggage prices. We
purchase gasoline regularly and we notice fluctuations in price, but luggage is an investment

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